Amazon.com (NASDAQ: AMZN) CEO Jeff Bezos once said, "Your margin is my opportunity," and Amazon has truly backed that up over the years. Despite explosive top-line growth, Amazon has consistently shown little-to-no GAAP profits in its core e-commerce business.

One of the biggest drivers of sales growth has been Prime, Amazon's $99 per year (or $12.99 per month) subscription service. Started back in 2005, Prime offers a suite of intriguing benefits, most notably free two-day shipping for an unlimited number of items.

Today, it seems increasingly clear that this was a farsighted and ingenious invention. As Prime has grown, Amazon has added benefits, spurring increased membership in a virtuous cycle. Now Prime is so large, it's causing problems even at Amazon's largest (and well-run) competitors: Walmart (NYSE: WMT) and Latin American e-commerce platform MercadoLibre (NASDAQ: MELI).

Amazon is competing hard against Walmart in the United States, but recent rumors suggest it's eyeing Latin America, specifically Brazil, potentially threatening MercadoLibre's leading position there. How are both companies trying to fend off the Amazon machine? With free two-day shipping, of course.

Image source: Getty Images.

Prime's progress

The bet on Prime may have seemed crazy at the time it was launched in 2005. Analysts often cited the fact that Amazon lost significant amounts of money on every Prime member due to shipping costs. But since then, Prime's annual price has increased from $79 to $99, and the service is now estimated to have between 65 million and 80 million members (Amazon does not disclose these figures). Those members contributed $3.2 billion in subscription revenue for Amazon, or just under 10% of sales, in the recent quarter. Consumer Research Intelligence Partners estimates that Prime members spend roughly $1,300 per year with Amazon, versus $700 for non-Prime members. That has, in turn, bolstered Amazon's third-party fulfillment business, which has higher margins.

Amazon's stock has rocketed in recent years as Prime has grown, winning over legions of loyal customers. It is only now, more than a decade after Prime launched, that competitors are biting the bullet to invest in free shipping.

MercadoLibre claws ahead

MercadoLibre rolled out free shipping in Mexico in 2016, then added it in Brazil in August 2017. Perhaps not coincidentally, that change came not long before rumors that Amazon was looking hard at the Brazilian market.

The introduction of free shipping has been a huge positive for MercadoLibre's sales and gross market value (GMV), which grew a huge 70.5% and 66.5%, respectively, over the past year.